3 Long-Term Stock Picks That Look Great Despite Iffy Yields

Los Angeles, Jul.6, free stocks .- With investors bailing out of the bond marketat a record pacein June, yields on bonds — which move in the opposite direction of prices — jumped, hitting 2.5% at several points.

Higher bond yields naturally have an impact on stocks —particularly dividend stocks, since they compete for investors’ income dollars. But investors would be wise to remember that a decision about whether to buy or sell a stock that offers a dividend shouldn’t be wholly centered around yield.

After all, the formula for calculating dividend yield (dividend/stock price) has two moving parts, the latter of which can really put a cloud over the first — namely, big losses in price might jack up the headline yield, but it doesn’t improve your yield on cost, and eventually they can more than offset the income you were collecting. Pitney Bowes (PBI) yields more than 5% in dividends, but its stock stinks on toast. Should you buy it for the dividend yield anyway? No.

At the same time, many stocks that do offer dividends, but have only modest yields (1%-2%), can be overlooked by income investors who think the payout is too small, as well as growth investors worried that a new or improving payout might be a sign that the growth story is over.

That’s not always the case, though. There are a number of stocks with not-so-hot yields that still are worth investing precisely because they do offer a measured mix of income and growth potential, even if it’s not the stuff of overnight doublers. What I’m looking for specifically are companies with businesses that still have room to expand, as well as a history of dividend increases and the cash to keep those payments up and climbing for the long-term. Here are three such stocks:

IBM

Dividend Yield: 2%5-Year Average Dividend Increase: 13.6%

We’ll go with the bad news first. IBM (IBM) has been under pressure since April, when it posted an earnings miss. Revenues dipped around 5% on a year-over-year basis, while net income on a comparable basis fell 6%. Additionally, IBM reiterated its expectation of lower full-year 2013 earnings, forecasting $15.53 per share vs. analyst targets of $16.33 per share.

Now, for the good news.

For one, IBM is making an assertive move into the cloud market — especially in lower-end startup and small- to mid-size business applications — to compliment its huge private corporate infrastructure and “meta-data” heavy business model. Most recently, it bought cloud infrastructure provider Softlayer Technologiesfor $2 billion.

Also, IBM is one of the most consistent repurchasers of its stock. Since 2002, IBM has reduced its number of shares outstanding from 1.703 billion to a current 1.11 billion. Fewer shares help boost EPS, which should help to drive stock prices even when the income statement isn’t pristine.

And the dividend is still alive and kicking. IBM’s most recent increase of 12% puts the quarterly payout at 95 cents per share, and marks the 14th consecutive year IBM has improved its dividend. Despite its weak first quarter, IBM generated $1.6 billion in free cash flow, and sits on more than $11 billion in cash — well in excess of its $950 million dividend payout. At a P/E of just more than 14, IBM is fairly priced for such an attractive, consistent company.

Disney

Dividend Yield: 1.2%5-Year Average Dividend Increase: 17%

Disney (DIS) has been hitting on all cylinders of late, with revenue across its television, resorts and movie segments all ahead in 2013. On the movie side, Iron Man 3was a hit, andThe Lone Ranger — out this weekend — could be a blockbuster. On the resort side, Disney launched a new cruise ship earlier this year, and folks are still flocking to its theme parks helping to drive higher revenues and earnings.

Meanwhile, DIS shares are up 30% year-to-date, well ahead of the broader market. Disney’s dividend yield isn’t anything to scream about, but that’s in part because share appreciation has well outpaced the company’s 17% average increase over the past five years. Nonetheless, that payout isn’t going anywhere, and Disney can easily increase it thanks to $3 billion in free cash flow and another $4 billion in the bank. I personally bought shares in early April when the yield was only 1.4%, and I couldn’t be happier.

W.W. Grainger

Dividend Yield: 1.4%5-Year Average Dividend Increase: 18%

I have a soft spot in my heart for W.W. Grainger (GWW) — the unsexy distributor of maintenance and repair supplies – and I’ve written about the company on several occasions. The company boasts a solid business model, profits and revenues that have improved for four consecutive years, and decades of increased payouts.

The company is off to a solid start in 2013, with first-quarter earnings up 14% year-over-year on revenues that improved by 4% to just under $3 billion. Grainger also provided analysts with guidance better than they expected — GWW thinks it’ll pull in $11.30 to $12 for the fiscal year, with the high end ahead of estimates of $11.94. Cash flow of $210 million doesn’t sound like much, but it more than covers GWW’s $56 million in dividend payments — plus Grainger has another $485 million in the bank.

GWW shares reflect the company’s financial results, up 27% year-to-date. Perhaps my only criticism is that Grainger isn’t cheap at nearly 25 times earnings, but I’d certainly consider buying if the market turned and dragged GWW down a bit with it..

Bogle wrote a letter to the editor. Here's an excerpt: Citing Benjamin Graham as the first "hedged fund" operator is an especially unfortunate example. "The trick," Mr. Rice writes, was Graham's "clever way to make money . . . whether it [the market] continued to rise, or started to fall." ...

One of my pet peeves is the way that insiders -- whether corporate CEOs, hedge fund managers, or elected politicos -- capture compensation (or credit) for normal cyclical gains they had little or nothing to do with.

This is the approach favored by the Crony Capitalists — those people pretending to be free market participants, and who merely pretend to be creating value. They are taking credit for structural successes that would have occurred with or without them. What they are actually doing is capturing value, not creating it — and then transferring it from its true owners (shareholders/investors) to themselves.

This is wrong; it is legalized theft.

If you want to see a good example of how CEOs transfer shareholder wealth to themselves, a good place to start is Roger Lowenstein’s 2004 book, Origins of the Crash: The Great Bubble and Its Undoing. The section on CEO compensation is astounding; these guys were essentially getting wildly overcompensated for being CEOs during a bull market. The prime example was the CEO of Heinz, who gave himself (with the tacit approval of his Board ofCrony Directors) a $90 million bonus. And this was back in the early 1990s, when $90 million was real money.

Earlier this year, Goldman Sachs Asset Management announced that it would launch a new mutual fund that — apparently — will bring the joy of hedge fund investing to the masses. For as little as $1,000, the Multi-Manager Alternatives Fund (GMAMX) allows mom-and-pop investors to put their life savings into some of Wall Street’s riskiest and most expensive products. This “fund of funds” will, according to its prospectus, let investors gain exposure to the trading strategies of hedge funds...

Big public pension funds reaped strong returns from their hedge fund portfolios in 2012, with most of them handily surpassing their own benchmarks and well-used industry indexes. The hedge fund portfolios, for the most part, achieved close to what chief investment officers wanted, despite a 1,500-basis-point difference between the best and worst performers, according toPensions & Investments' analysis of the returns of 19 hedge fund portfolios from 17 U.S. public retirement plans with aggregate hedge fund assets of $60.7 billion.

Something must be in the water over at 399 Park Avenue, where Daniel Loeb's hedge fund Third Point is headquartered. His Third Point Ultra fund has already gained 12.42 percent this year through the 13th of March, according to data from HSBC’s Private Bank.

The portfolio added 3.3 percent alone between March 1 and March 13. By comparison, hedge funds have returned about 4 percent year-to-date, according to HSBC.

The roughly $1.7 billion Ultra portfolio is a levered version of the firm’s flagship Offshore fund, which manages about $5.7 billion and has gained 8.5 percent over the same period. ...

After taking a cursory look at the recent 13-Fs filed by hedge funds, it became apparent that hedge funds were scaling back their exposures to gold. George Soros was among the big names that unloaded his position. According to Goldman Sachs' new Hedge Fund Trend Monitor report, hedge funds in aggregate scaled back big time.

Despite low turnover, hedge funds notably reduced holdings of underperforming long-time favorites Apple and gold while raising allocations to rallying Financials. For the first time in three years AAPL was not the top stock in our VIP list, instead ranking as the third most frequent top-10 holding... Continue to read.

10 Publicly Traded Hedge Funds That Pay a DividendInvesting in publicly traded hedge funds is a great way for an investor to see returns through capital appreciation and dividend payments in the financial sector. When it comes to investing, many think of the process as a choice between growth and value stocks; you’re either taking on risk in search of capital appreciation, or you’re seeking out stable sources of current income through dividend payments. Luckily, Wall Street has many investment options and investors don’t have to make a clear-cut choice between capital gains and dividends. There are a lot of misunderstandings about dividend stocks out there; make sure you’re investing for the right reasons, check out 5 Common Misconceptions About Dividend Investing.... Continue.

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Apple Stock Hit by Panic Selling: 'Someone Yelled Fire'(Yahoo) Forget the "fiscal cliff." The real panic on Wall Street is over Apple's stock. Nearly every mutual and hedge fund has piled into Apple Inc. (NASDAQ:AAPL) during its spectacular rise over the past few years. Now, these same funds are scrambling for the exits as the stock goes through an equally spectacular decline. Apple plunged to a six-month low Thursday as funds rushed to take profits on the stock before it's too late. Shares are now off 25 percent since late September-shortly after the iPhone 5 launch and a month before the iPad Mini introduction. The stock, once up 74 percent on the year, is still up 30 percent for 2012. That's why Wall Street is getting out while it can....

Billionaire George Soros’s Latest Stock Picks (InsiderMonkey) George Soros is best known for the fortune he made shorting the British pound in 1992, but he currently invests a considerable amount of money in equities and so is required to report many of his long positions in 13F filings. We’ve gone through the 13F for the third quarter of the year and compared Soros’s holdings at the end of September to three months earlier. Read on for our impression of his moves and compare them to what he's bought and sold before. AIG. American International Group, Inc. (NYSE::AIG) became Soros’s largest 13F equity holding during the third quarter with a position of over 15 million shares being reported in the filing. A number of value investors have been getting into the insurer over the course of the year, and at a P/B ratio of 0.5 it certainly looks cheap compared to the book value of its equity. We also like its earnings multiples- it trades at 9 times forward earnings estimates- and revenue was up strongly in the third quarter compared to the same period in 2011. Fellow billionaire Dan Loeb had initiated a position during the second quarter of 2012 and we think that it still looks like a good buy for investors....

Duke Energy CEO Jim Rogers still facing issues as tough year nears an end (BizJournals) In late 2011, Jim Rogers seemed almost golden. He was about to close his last big merger deal. He was poised to take a corporate chairmanship tailored to his penchants for energy policy and reshaping the utility-business model. He was ready to bask in the spotlight of a national convention he’d helped bring to Charlotte. But by late 2012, it’s evident things have not gone so well. “It has been a year of challenges,” the Duke Energy Corp. chief executive concedes. “Nothing in life is perfect.” Dan Fogel, associate director of the Wake Forest University Business School’s Center for Energy, ...

Argo unveils emerging markets hedge fund (InvestmentWeek) Argo Group has launched an emerging markets hedge fund investing in bonds and currencies from a universe of over 40 emerging market countries. The Argo Local Markets fund aims to hold between 20 and 30 positions and has been launched with an initial $7m of seed capital. It will offer investors weekly liquidity and has a mandate to take on moderate leverage. Argo chief executive Kyriakos Rialas said: "The case for investing in emerging markets is compelling....

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Tom Steyer New InvestmentsFARALLON CAPITAL Hedge fund billionaire into politics (DailyDemocrat) Hedge-fund billionaire Tom Steyer staked millions of his own money to take on big oil and then to close a corporate-tax loophole costing California $1billion a year -- and won both times. Ever heard of him? Don't worry, you will. With his latest behind-the-scenes win at the polls as the man who stared down big business by standing up for Proposition 39, this Stanford MBA and top Obama fundraiser has become an out-of-nowhere big-time political player in California. So what does Tom Steyer want now? "I am an enormous lover of California and to the extent that I see something wrong, I will be involved in trying to fix it," Steyer, 55, said Monday. "What form that takes, I don't have a fixed idea."...

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BMW and Pininfarina are two of the most tradition-swathed names in the motoring world. Each is a byword for cutting-edge technology, style, dynamics and aesthetics. With the BMW Pininfarina Gran Lusso Coupé, the two

time-honoured companies are unveiling the outcome of their first collaboration at the Concorso d’Eleganza Villa d’Este 2013. The BMW Pininfarina Gran Lusso Coupé is a one-off and represents the exclusive interpretation of a luxurious BMW Coupé as seen through the eyes of Pininfarina.

The precious metals have been weak again in May with gold falling 4.4% despite this weeks’ recovery. Silver is down 7% and platinum by 2.6%. Palladium has recovered from recent weakness and those who accumulated on weakness are set for the best month since November after it surged 6.6% in May.

Weakness in gold and silver is leading to robust demand internationally as store of value buyers accumulate gold and silver on this dip. This is particularly the case in Asia where premiums remain robust and supply demand imbalances remain. ...

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The future of work is the work itself, not where and when the work takes place. Workplace flexibility programs are already catching on and will soon become standardized as more millennials enter the workplace. All workers, not just millennials,want freedom and flexibility and some are even quitting their jobs to becoming freelancers in order to gain that freedom. oDesk.com has 3.3 million registered freelancers, and Intuit predicts that by 2020, 40% of Americans will be freelancers. When it comes to working from home, 13.4 million people (9.4% of all American workers) work from home at least one day per week compared to just 9.2 million in 1997 according to one Census Bureau.

Russia is funding research into powering its airplanes with solar energy. The airline industry is being hurt by high fuel prices, and solar-powered planes would not only be cheaper but also would remove a major source of carbon pollution that contributes to global warming.

Investors have picked over the ETF universe in search of any kind of yield in an extremely low-rate market for bonds. As a result, ETFs tracking many traditional high-yield sectors have been bid up to expensive levels, but there are still places investors can go for income without paying nosebleed valuations. “Unfortunately, valuations [for dividends, high-yield junk bonds, MLPs, and REITs] are approaching sky high levels in many instances as more investors fall in love with these products ... Continue.

U.S. manufacturing growth picked up in March as new orders increased and hiring quickened, closing out the best quarter for the sector in two years, a survey showed on Monday. Financial data firm Markit said its U.S. Manufacturing Purchasing Managers Index rose to 54.6 last month from 54.3 in February. A reading above 50 indicates expansion. Output increased, though the rate of growth slipped to 56.6 from 57.3 in February...